Compute what is the cost of capital for the project

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You are a consultant to a firm evaluating an expansion of its current business. The cash-flow forecasts (in millions of dollars) for the project are as follows:

Years      Cash Flow

0-              100

1 -            10+17

On the basis of the behavior of the firm's stock, you believe that the beta of the firm is 1.39. Assume that the rate of return available on risk-free investments is 6% and that the expected rate of return on the market portfolio is 14%.

Problem a. What is the project IRR? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Problem b. What is the cost of capital for the project? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Reference no: EM132739519

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